Last Updated 4:10PM EST
Stock indices ended with mixed results after today’s choppy trading session. The Nasdaq 100 and the S&P 500 fell 1.24% and 0.66%, respectively. Meanwhile, the Dow Jones Industrial Average gained 0.12%.
The communications sector (XLC) was the session’s laggard, as it lost 1.85%. Conversely, the real estate sector (XLRE) was the session’s leader, with a gain of 1.01%. In addition, WTI crude oil remained under $90 per barrel, as it’s hovering around $88.55.
Furthermore, the U.S. 10-Year Treasury yield fell to 3.943%, a decrease of 1.8 basis points. Similarly, the Two-Year Treasury yield also decreased, as it hovers around 4.318%. This brings the spread between them to -37.5 basis points. The negative spread indicates that investors still have fears of a recession.
Compared to yesterday, the market is pricing in a higher chance of a lower Fed Funds rate for the end of the year. In fact, the market’s expectations for a rate in the range of 4.25% to 4.5% increased to 60.7%, which is up from yesterday’s expectations of 56.1%.
In addition, the market is now also assigning a 27.9% probability to a range of 4.5% to 4.75%. For reference, investors had assigned a 29.4% chance yesterday.
Stock Indices are Mixed; Inflation Expectations Fall
Last Updated 3:00PM EST
Stock indices are mixed heading into the final hour of today’s trading session. As of 3:00 p.m. EST, the Nasdaq 100 and the S&P 500 are down 1.4% and 0.7%, respectively. Meanwhile, the Dow Jones Industrial Average is up 0.1%.
On Tuesday, the New York Federal Reserve released its monthly survey that measures the inflation expectations of consumers. Inflation expectations fell month-over-month, a positive sign for the central bank. In the most recent survey, consumers expect inflation to be 5.4% over the next year. For reference, the expectations were 5.7% for the year in the previous month.
Undoubtedly, the Federal Reserve welcomes this news, as Jerome Powell has stressed throughout the past year that it’s crucial to prevent inflation expectations from becoming too high. However, it’s important for investors not to become overly optimistic and start believing that this is enough to make the central bank pivot on its rate hikes.
Indeed, members of the Federal Reserve have repeatedly stated that inflation is still nowhere near the level it should be and that more rate hikes are on the way.
Stock Indices are Mixed Halfway into Trading Session
Last Updated 12:00PM EST
Stock indices are mixed halfway into today’s trading session. As of 12:00 p.m. EST, the Dow Jones Industrial Average and the S&P 500 are up 0.8% and 0.03%, respectively. Meanwhile, the Nasdaq 100 is down 0.4%.
The technology sector (XLK) is the laggard so far, as it is down 0.8%. Conversely, the consumer staples sector (XLP) is the session’s leader with a gain of 1.3%. In addition, WTI crude oil is currently back under $90 per barrel, as it’s hovering around $89.40.
Furthermore, the U.S. 10-Year Treasury yield fell to 3.89%, a decrease of 7.1 basis points. Similarly, the Two-Year Treasury yield also decreased, as it hovers around 4.28%.
Stocks Continue to Slide as IMF Lowers Outlook
Last Updated 10:00 AM EST
Stock indices are in the red 30 minutes into today’s trading session. As of 10:00 a.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 0.4%, 1.1%, and 1.6%, respectively.
On Tuesday, the International Monetary Fund (IMF) published its World Economic Outlook. Unsurprisingly, it lowered its forecast for global growth in 2023 to 2.7%. This compares to its July forecast of 2.9%.
Furthermore, the IMF expects that the worst is yet to come, stating that 2023 will feel like a recession for many. Indeed, it expects more than a third of the world to experience two consecutive quarters of negative growth.
This increasing pessimism was attributed to three factors: China’s zero-COVID policy, the war in Ukraine, and inflation.
China’s insistence on lockdowns in order to bring COVID-19 down to zero continues to negatively impact the world’s second-largest economy which had previously been growing at a relatively fast rate. Meanwhile, the war in Ukraine has led to a natural gas crisis in Europe which has seen the price of energy increase significantly and result in higher inflation.
However, inflation has been impacting economies all around the world, causing central banks to raise interest rates. These aggressive policies will likely lead to a further slowdown of the global economy, especially for nations that have foreign debt denominated in U.S. dollars.
Futures Dip Ahead of CPI Data, Bank Earnings
First Published 7:11 AM EST
U.S. stock futures dipped as investors proceeded further into a week full of economic concerns and hopes.
Futures on the Dow Jones Industrial Average (DJIA) fell 0.53%, while those on the S&P 500 (SPX) lost 0.62%, as of 7 a.m. EST, Tuesday. Meanwhile, the Nasdaq 100 (NDX) futures dipped 0.57%.
What Drove Investors Away on Monday
On Monday, the Nasdaq Composite fell to a 2-year low, pulling its subset Nasdaq 100 index 1.03% lower at market close. Moreover, the S&P 500 and the Dow each retreated 0.75% and 0.32%, respectively.
The Semiconductor and Semiconductor-Equipment industry was one of the major loss-makers yesterday, falling 3.33%. Biden administration’s new bars on semiconductor exports shook any certainty that was left for near-term appreciation of semiconductor stocks. The losses in this industry weighed on technology stocks that are dependent on chips, in turn pulling the entire tech sector down.
Moreover, as the certainty of interest rates being high for some time rises, investors are expected to be bearish on tech stocks for the coming few weeks. This is because the tech sector is very sensitive to interest rate changes.
Dimon’s Comments Seals the Recession Deal
The broader market also witnessed a significant sell-off which was sparked by comments from JPMorgan (NYSE:JPM) CEO Jamie Dimon about the U.S. tipping into recession territory in the next six to nine months.
Dimon had time and again warned that the consumer spending boom was inevitably heading to be thrown off the track once the Federal Reserve hikes the interest rates to curb inflation, and that is exactly what is happening. Besides to that, the mounting hostility between Russia and Ukraine is also weighing on the U.S. market from various aspects. These factors, said Dimon, are “likely to put the U.S. in some kind of recession six to nine months from now.”
Considering that Dimon leads the largest bank in the U.S., his comments on the present economic health were taken very seriously. His observations brought fresh certainty to the speculations of an impending recession.
Mega-Earnings in the Banking Sector Expected to be Lackluster
Dimon’s remarks come just a few days before JPM and other major U.S. banks report their third-quarter earnings.
The only positivity in sight for bank earnings seems to be the rising interest rates which might have buoyed NII (net interest income) of the banks in Q3. However, increase in provisions, higher costs, lower activity in the capital market, and tough comparison could potentially suppress performances.
Key Economic Updates This Week Will Influence the Fed’s Next Move
The most important update of the week, undoubtedly, is the consumer price index (CPI) reading for September, which is due out on October 13.
It remains to be seen what the report holds. If the CPI indicates an inflation rate cooler than that of August, a short rally may follow. However, as macroeconomic and geopolitical issues are still far from over, the rally (if any) will not last long.
This apart, the producer price index (PPI) for September, which is also a key indicator of inflation from a wholesale point of view, is due to be released on Wednesday. Additionally, fresh retail sales data will be released on Friday, giving us a peek into how much consumers are buying with the high prices.
That said, despite having a lot to process at once, investors are most likely to be focused on the Federal Reserve’s reaction to the updates. The idea of a pivot will remain, despite the Fed making it clear that it is off the table at least for now, and given last week’s data revealing a stronger-than-expected labor market, the Fed is expected to remain hawkish.
